Falling Profits Drag Down Small Business Confidence in October

Falling profits and lower sales enervated the tempers of small business owners in October.

The National Federation of Independent Business said Tuesday that its optimism index fell six-tenths of a point to 98.2. Five of the 10 components that make up the benchmark declined while four climbed.

Reports of rising profits fell sharply in October, down nine points from September to a net negative twenty-five percent after seasonal adjustments, making it the largest drag on the index. This was the biggest decline in the profits measure since the pandemic.

For those seeing profits shrink, the usual suspects lined up in order: weaker sales (33 percent), pricier materials (16 percent), and—tied for third—price changes and labor costs (9 percent each).

Sales reports went cold in October: just a net negative thirteen percent of owners saw higher nominal sales, six points worse than in September. Hopes for real growth cooled as well, the net expecting stronger volumes edging down two points to six percent.

Owners’ view of their business health slipped in October, with more describing conditions as fair rather than good. Twelve percent rated their firms excellent (up one point) and fifty-one percent good (down six), while thirty-three percent said fair (up six) and four percent poor (unchanged).

Expectations for better business conditions fell three points to a net twenty percent (seasonally adjusted)—the lowest since April but still well above the historical average of four percent.

Thirteen percent of owners said October was a good time to expand, up two points from September but subdued by expansion-era standards.

The share of owners expecting better business conditions fell three points to a net twenty percent (seasonally adjusted), the lowest since April but still well above the historical average of four percent.

Price pressures eased slightly in October. On a seasonally adjusted basis, the share of owners raising average selling prices fell three points to a net twenty-one percent. Even so, that remains above the long-term monthly average of thirteen percent, indicating inflationary pressures persist. Unadjusted, thirty-one percent reported charging more (down two points) and twelve percent reported charging less (up two). Looking ahead, a net thirty percent plan to raise prices over the next three months, down one point from September.

Hiring strains persisted in October, with thirty-two percent of owners reporting unfilled positions for a second consecutive month—a level last seen in December 2020. Complaints over labor quality surged: twenty-seven percent cited it as their chief difficulty, nine points higher than in September and just shy of the record set in late 2021. Labor quality thus held its place as the leading constraint, surpassing taxes by eleven points.